Alamo City home sales, prices will continue climbing, economist says

Some may go begging for a cheaper starter home

Construction workers David Flores, right, Areli Martinez, center, and Luis Ortigoza, left, put paneling on the side of a new house as homes are being built in the Carmona Hills neighborhood by KB Home on the Southwest Side of San Antonio. Construction hiring in Texas rose in August by 2,600 jobs. less

Construction workers David Flores, right, Areli Martinez, center, and Luis Ortigoza, left, put paneling on the side of a new house as homes are being built in the Carmona Hills neighborhood by KB Home on the ... more

Construction workers paint the side of a house on Thursday in KB Home’s Carmona Hills neighborhood on the Southwest Side.

Construction workers paint the side of a house on Thursday in KB Home’s Carmona Hills neighborhood on the Southwest Side.

Photo: Matthew Busch /For The San Antonio Express-News

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Construction workers pour a concrete foundation in the Carmona Hills neighborhood by KB Home on the Southwest Side of San Antonio in 2017. The U.S. economy grew at a solid rate of 2.6 percent in the final three months of last year, helped by a big rebound in home construction and the fastest consumer spending since the spring of 2016. less

Construction workers pour a concrete foundation in the Carmona Hills neighborhood by KB Home on the Southwest Side of San Antonio in 2017. The U.S. economy grew at a solid rate of 2.6 percent in the final three ... more

Photo: Matthew Busch /For The Express-News

Image 5 of 8

Construction workers David Flores, right, Areli Martinez, center, and Luis Ortigoza, left, put paneling on the side of a new house as homes are being built in the Carmona Hills neighborhood by KB Home on the Southwest Side of San Antonio, Texas on Thursday, January 5, 2017. less

Construction workers David Flores, right, Areli Martinez, center, and Luis Ortigoza, left, put paneling on the side of a new house as homes are being built in the Carmona Hills neighborhood by KB Home on the ... more

Photo: Matthew Busch, For The San Antonio Express-News / For The San Antonio Express-News

Image 6 of 8

Construction workers Areli Martinez, right, and Luis Ortigoza, left, put paneling on the side of a new home as homes are being built in the Carmona Hills neighborhood by KB Home on the Southwest Side of San Antonio, Texas on Thursday, January 5, 2017. less

Construction workers Areli Martinez, right, and Luis Ortigoza, left, put paneling on the side of a new home as homes are being built in the Carmona Hills neighborhood by KB Home on the Southwest Side of San ... more

Photo: Matthew Busch, For The San Antonio Express-News / For The San Antonio Express-News

Image 7 of 8

Construction workers David Flores, right, Areli Martinez, center, and Luis Ortigoza, left, put paneling on the side of a new house as homes are being built in the Carmona Hills neighborhood by KB Home on the Southwest Side of San Antonio, Texas on Thursday, January 5, 2017. less

Construction workers David Flores, right, Areli Martinez, center, and Luis Ortigoza, left, put paneling on the side of a new house as homes are being built in the Carmona Hills neighborhood by KB Home on the ... more

Photo: Matthew Busch, For The San Antonio Express-News / For The San Antonio Express-News

Image 8 of 8

Pedro Roque, a painter, poses for a portrait in the Carmona Hills neighborhood by KB Home on the Southwest Side of San Antonio, Texas on Thursday, January 5, 2017.

Pedro Roque, a painter, poses for a portrait in the Carmona Hills neighborhood by KB Home on the Southwest Side of San Antonio, Texas on Thursday, January 5, 2017.

Photo: Matthew Busch, For The San Antonio Express-News / For The San Antonio Express-News

Alamo City home sales, prices will continue climbing, economist says

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2017 likely will be a good year for the San Antonio-area housing market, with sales continuing to rise at a brisk pace, a leading Texas economist said Thursday. But it could be a bad year for local residents looking for a cheap starter home.

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Texas homes still are relatively affordable, helping draw workers and employers from across the U.S., economist Mark Dotzour said in an interview after the San Antonio Board of Realtors’ annual housing forecast. But developers are struggling to keep up with market demand and the growing local population, causing prices to rise and creating “a threat to the entire Texas economy,” he said.

“As long as you continue to get that rate of increase in population growth, I would expect that superheated rate of home price appreciation to continue, because the supply side just cannot keep up with demand,” said Dotzour, a retired professor from the Texas A&M Real Estate Center. “We’re losing that competitive edge every year that our home prices go up 8 to 10 percent.”

Home prices have surged in the San Antonio-New Braunfels metro area over the past several years, data provided by SABOR show. The local median sales price was $203,700 between January and November of last year, a 5.8 percent increase from the median of $192,600 during that time in 2015 and a 27.2 percent increase from $160,100 in 2012.

Texas is in the early years of a decadelong boom in single-family housing, Dotzour said, but a shortage of skilled labor and strict federal lending policies are keeping developers from building enough homes to accommodate the growing population. The local area’s inventory of available homes — measured by the average time it takes for a home to be sold if no new homes are listed — likely will remain extremely tight this year, and even could tighten further, after hitting a record low of 3.3 months in November, he said. An inventory of six months indicates a balance between buyers and sellers.

The local housing market is coming out of what almost certainly was another record sales year: 27,147 homes were sold by November, slightly below the record 27,219 sold in all of 2015, SABOR data show. And 2017 probably will set another record as local job growth, low mortgage rates and rising home values keep pushing up sales, Dotzour said.

Mortgage rates likely will increase by a quarter- or half-percentile this year, due to inflation caused by rising wages, he said. The interest rate for a 30-year fixed-rate mortgage has been on an upswing since hitting a low of 3.42 percent in September, reaching 4.20 percent this week.

Yet mortgage rates remain low historically, Dotzour said. The rate was between 5 and 8 percent for most of the decade between 2000 and 2010, and it was above 10 percent for much of the ’70s and ’80s.

“I would be surprised if rates are more than 1 percent higher than they are now” at the end of the year, he said. “Historically, in the last 45 years, (that’s) like free money.”

Pent-up housing demand among millenials also will boost the housing market, Dotzour said. He brushed aside the belief that millenials aren’t interested in being homeowners. While the nation’s homeownership rate has declined over the past decade, that’s largely because people with low credit are having a harder time getting loans, he said.

“This idea that a whole generation of people is going to ride their bicycle to work every day and take their kids to soccer practice on the back of their bike, wearing a helmet, that just isn’t going to work forever,” Dotzour said during the presentation. “They’re going to buy houses, and minivans for that matter.”

Some analysts forecast the national housing market will slow down this year. The National Association of Realtors predicted last month that U.S. home sales would increase only modestly in 2017 due to rising mortgage rates and home prices. Only 57 percent of renters think it’s a good time to buy a home, down from 68 percent a year ago, according to a survey conducted by the association.

Dotzour said he disagreed with that prediction, pointing to another report showing a recent increase in consumer confidence. Business leaders expect President-elect Donald Trump to create jobs, he said. But Trump’s policies could exacerbate the labor shortage, he said.

Trump has proposed rehabilitating the nation’s infrastructure, which could worsen the labor shortage by drawing workers from other sectors of the economy, and he has promised to restrict on immigration.

As for San Antonio, its luxury housing market has been on a tear over the past eight years, according to a presentation by Tómas Martinez, a local real estate agent who specializes in high-end properties.

Sales of homes priced between $1 million and $2 million more than doubled between 2006 and 2016, increasing to 123 from 47. The trajectory was similar for “preluxury” homes priced between $300,000 and $500,000, with sales skyrocketing to 5,014 from 1,874.

For its part, the local apartment market is starting to slow after long-term growth, said Tray Bates, former president of the South Texas Commercial Association of Realtors. The supply of apartments started to outpace demand late last year, and the local vacancy rate is “pretty high” at 6 percent, he said.

Many developers expect the national market for luxury apartments to slow this year due to a glut of complexes, causing rents to decline, an article published Sunday in the Wall Street Journal stated.

“You have a lot of potential for apartment growth, you have a lot of available properties, but we don’t have the demand fully yet because we’ve overbuilt slightly. So we’re waiting for the demand to come back,” Bates said.

Other speakers at SABOR’s annual housing forecast meeting painted a bright picture of San Antonio’s future as the city prepares to absorb an expected 1.1 million new residents by 2040. Development projects such as the EPIcenter clean energy museum and the rehabilitation of the Lone Star Brewery, San Pedro Creek and Hemisfair will transform San Antonio, said Jenna Saucedo-Herrera, CEO and president of the San Antonio Economic Development Foundation.

“In five or 10 years, we will not recognize the San Antonio community that exists today,” she said. “It’s on us to make sure that we maintain the rich and authentic history, legacy and culture that exists in San Antonio … but also to improve upon it, so we can become that aspirational community we want to become, so we can propel San Antonio to global competitiveness.”

Local population growth was a major topic at the event. Isidro Martinez, director of the Alamo Area Metropolitan Planning Organization, said $17 billion of local infrastructure is set to be built by 2040, including expansions to U.S. 281, Interstate 10 and Interstate 35, but that it’s “nowhere near enough for what we need” to accommodate population growth.

The Texas Association of Realtors released a study Wednesday showing Texas had a net gain of 107,689 residents coming from out of state in 2015, a 4.1 percent increase from the year before. That put it in second place among U.S. states, behind only Florida, with 139,618 new residents.

A net gain of 8,029 residents moved into the San Antonio-New Braunfels metro area from out of state in 2015, putting the local area in fourth place statewide, behind Houston, with a net gain of 29,339; Dallas, with 24,997; and Austin, with 16,890, according to the study.